Several major product failures in the wake of the global financial crisis (GFC), such as agribusiness investors TimberCorp and Great Southern, property group Westpoint, as well as major advice group Storm Financial, triggered the Ripoll Review, which led to the Future of Financial Advice reforms – with advice groups often questioning why that sector has been targeted more heavily than other gatekeepers such as research houses.
Lonsec’s general manager of strategy and development, Richard Everingham, told a recent Parliamentary Joint Committee (PJC) on Corporations and Financial Services that Lonsec “does not believe that research houses have either the knowledge, the expertise or the resources to accurately and consistently identify fraudulent conduct that may lead to financial product failure”.
“Nor can research houses accurately and consistently predict extraordinary market events which may cause market failure,” he added.
While research houses provide opinions and guidance on the nature of investment products and how to use them, that advice is general in nature, while it is the role of the financial adviser to know the end investor and provide personal advice, he said.
Mr Everingham conceded that research houses could continue to improve and professionalise their services further and should strive to do what they can to close the expectation gap with financial planners.
However, financial planners must also accept that “with their desire to become true professionals comes the responsibility to understand not only the nature of investment products better, but how these investment products should be used and who they are and are not suitable for”.
The public should be able to expect similar standards and expertise from the advisers who prescribe financial products as they do of the doctors who prescribe drugs to improve our physical health, he said.
